KPMG to Pay $456 Million for Largest Criminal Tax Shelter Fraud Case
September 1, 2005 - Big 4 CPA firm KPMG LLP (KPMG) has admitted criminal wrongdoing and agreed to pay $456 million in fines, restitution and penalties in an agreement to defer prosecution for a multi-billion dollar criminal tax fraud conspiracy related to four tax shelters, the Justice Department and IRS announced on Aug. 29, 2005. Under the agreement, criminal charges against KPMG will be deferred until Dec. 31, 2006, and then dismissed, if it pays $456 million in fines, restitution, and penalties. These penalties consist of: $100 million in civil fines for failure to register the tax shelters, $128 million in criminal fines as disgorgement of KPMG's fees; and $228 million in criminal restitution for taxes lost due to the running of the statute of limitations and what IRS describes as KPMG's intransigence in providing IRS with documents and information. IRS also announced that nine individuals--including six former KPMG partners and the former deputy chairman of the firm--are being criminally prosecuted.
In what IRS's News Release termed "the largest criminal tax case ever filed," KPMG admitted that it engaged in a fraud that generated at least $11 billion dollars in phony tax losses which may have cost the U.S. at least $2.5 billion dollars in evaded taxes. It is alleged that from 1996 through 2003, KPMG, the nine indicted defendants and others designed, marketed and implemented four illegal tax shelters, called FLIP, OPIS, BLIPS and SOS. These shelters were targeted to wealthy individuals who needed a minimum of $10 or $20 million in tax losses so that they could pay fees that were a percentage of the desired tax loss to KPMG and others instead of paying billions in taxes to the government. KPMG admitted that it took deliberate steps to conceal the shelters by failing to register them, fraudulently concealing their income and losses on tax returns, and attempting to hide them using sham attorney-client privilege claims.
The agreement imposes permanent restrictions on KPMG's tax practice, including a practice area providing tax advice to the wealthy, and permanent adherence to higher tax practice standards in issuing certain tax opinions and preparing tax returns. Further, the agreement bans KPMG's involvement with any pre-packaged tax products and restricts KPMG's use of fees not based on hourly rates. KPMG is required to implement a compliance and ethics program; to install an independent, government-appointed monitor to oversee KPMG's compliance with the deferred prosecution agreement for a three-year period; and to fully cooperate in the pending criminal investigation. (IR 2005-83)
Coverages and availability vary by state. Not all businesses and individuals qualify. This does not constitute legal, tax, or accounting advice or opinion. Consult with an experienced and properly licensed professional regarding the specific suitability of any planning technique.
Unless expressly stated otherwise on this website, (1) nothing contained in this website was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended; (2) any written statement contained on this website relating to any federal tax transaction or matter may not be used by any person to support the promotion or marketing or to recommend any federal tax transaction or matter; and (3) any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter contained in this website. No one, without our express written permission, may use any part of this website in promoting, marketing or recommending an arrangement relating to any federal tax matter to one or more taxpayers.